As a Chartered Professional Accountant, you work with tax legislation every day and there is no one who understands your clients’ financial reporting obligations better than you. So, when CRA reassesses one of your clients, it’s only natural that you want to prepare the objection. There are a number of reasons, however, why your client should retain a tax litigation lawyer to partner with you in bringing the objection. One of these reasons is solicitor-client privilege.

Solicitor-client privilege

CRA is becoming increasingly aggressive in using its powers under the ITA and ETA to obtain documents from taxpayers. CRA recently took two disputes regarding claims for privileged documents all the way to the Supreme Court of Canada (Minister of National Revenue v. Duncan Thompson and Attorney General of Canada v. Chambre des notaires du Quebec). Since written communications between accountants and their clients and an accountant’s notes are not protected by solicitor-client privilege, CRA can demand that these documents be disclosed. CRA can then use them to support their initial assessment or even to establish a new basis of assessment or add gross negligence penalties.

Is it worth your risk?

This risk puts accountants who are filing objections on behalf of their clients in a difficult position. In managing a tax dispute, it is necessary to inform the client of all the potential outcomes, any weaknesses in their position and – in some circumstances – potential compromises that could lead to a settlement. If accountants keep written records of these communications, they are jeopardizing the well-being of their client in the event that CRA demands the communications be disclosed. If accountants destroy any written communications or notes of conversations they had with their clients, they have no evidence in the event that the client unexpectedly claims that the accountant did not manage the objection correctly.

Partnering with a tax litigation lawyer in the objection process can alleviate this risk. Jurisprudence has established that where information is given to or by the accountant as agent for the client for the purpose of obtaining legal advice for the client, such information is then subject to solicitor-client privilege by virtue of the agency relationship. When working with accountants on a tax objection, HazloLaw – Business Lawyers assists clients in establishing an agency relationship with their accountant for the scope of the tax dispute by having the client and the accountant sign an Agency Agreement. This document would form the basis of any future claim of solicitor-client privilege over any records of communications between the accountant and the client.

In addition to helping establishing privilege, an effective tax litigation lawyer will contribute to the objection process by drafting jurisprudence-based submissions that counter CRA’s reassessment position and thereby reduce the likelihood of the matter escalating to the Tax Court. The tax litigation lawyer will also ensure that the client does not unintentionally make submissions at the objection stage that are inconsistent with the client’s strongest argument – something we often see when we are brought in to file an Appeal with the Tax Court.

Working together

At HazloLaw – Business Lawyers, we are keen to get involved in tax disputes as early as possible because the earlier we get involved the more efficiently we can obtain results. We know that accountants have a unique and specialized knowledge regarding their clients’ tax reporting obligations. We do not duplicate that service; rather, we complement accountants by providing a legal perspective based on our expertise and experience.

CRA reassessments are a certainty that all accountants face. When one of your clients is reassessed, please call us to discuss whether it is in the best interest of you and your client that we partner with you in bringing the objection.

This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Dean Blachford today. 613-747-2459 ext.310, [email protected]